State of the Market
Last update was an depth mid-point check in on the Winter Key Strategy.
Newer members, or anyone who missed it in the Christmas festivities, might want to take a look at that from last week as it’s got important info about how I see the rest of the season playing out.
Today, I want to focus specifically on January.
I’ll summarise my advice for January as follows:
– Be prepared for a silly season in January where unexpected things happen
– Keep focused on the overall strategy, don’t get too side tracked by temporary things
– Optionally: Lean into silly season with a small section of your bankroll and try to make some short term progress that way.
For the details as to why, read on.
Will January be "Silly Season"?
A couple of times this week I’ve mentioned the madness that I am half expecting to occur in January.
The general expectation is that the market will rise in the month ahead. A huge FI advertising push, probably backed up by a “Try January” offer could get lots of new traders in play.
The expectation of this alone, and memories of the fantastic January 2019 where the market was flying, could be enough to get things rolling.
In fact, it likely already has and we have seen a great finish to December after one of the quietest periods of 2019.
This is what I expect too. But predicting where much of that money will go is harder.
If we are expecting new traders with free hit bonuses, what does that suggest will happen?
- New traders tend to favour the EPL as they are familiar with it.
- They will, like all of us when starting out, not neccessarily know which players are good or bad and can appear to act irrationally.
- They are particularly vulnerable to social media pump and dump merchants and we can expect the pumpers to be out in force trying to reel them in.
- Using the Try January offer – they are able to trade without risk. Traders without risk can afford to be totally wreckless.
- We are in the transfer window, where players can rocket or tank from hour to hour based on a headline alone.
So how do we profit from it or at least protect ourselves from any volatility?
The first thing is to mentally prepare ourselves for seeing these kind of moves.
If we see pumpers pushing people to the easy sell targets (Greenwood’s, the Brewster’s, the Sessegnon’s) or traders flocking to whichever of the 9 players have a tenous link to Manchester United on any given day, know that it’s ok to ignore it if you want to.
One look at my pre-season prediction results tells you why. Often, what is getting social media attention, particularly when the player is at a high price, is not actually delivering the best profits. In fact, they are likely to be underperforming the market certainly if held for any length of time.
Last week, I discussed how the social media “consensus” is usually wrong, and I suspect this will be an important month to bear that in mind.
The first way to profit, which I definitely use, is to sew up likely January targets ahead of time, in November or at least early December. I have advised this previously and it’s why most of the Transfers section was refreshed at this time.
If you did this, you may now be able to ride the rises in players that have picked up links as far as you think you can get away with. If you have a nice rise in a transfer related player and you don’t fancy keeping them at the destination club, it is often better to sell rather than wait for the transfer to really happen or get close.
If you bought the player for the transfer, banking a profit early if you can is, overall, the most profitable move. Why? Because the vast majority of transfers come to nothing. It’s just playing percentages.
I might make an exception for a player if I liked him at the destination club. Isco would be a good example, he could succeed at City or Chelsea and would get a big rise from £1.96 if so. But, if the transfer fell over, that’s not a disaster because he could start for Real and do well too.
Braut-Haland on the other hand would be a player I would not have bought or kept if you put a shotgun in my mouth. For the reasons we have seen. If a player relies purely on a specific transfer for his value, we should be quick to take profits.
Chances are, it will fall over and people are left not just with a drop from £4.83 to £4.22, they are now stubbornly holding because they can’t stomach selling at a £3.52 spread even though he is likely to drop below £2 in 2020.
Even if a minor miracle happens and he heads to Old Trafford, he’ll drop eventually anyway. Only the flippers and the pumpers win on trades like this. And they have won already because any flipper with 4 brain cells to rub together cashed this out a while ago.
The other method of profiting from transfers is to lean into the madness and try to ride the spikes and drops in prices caused by the shifting news reports.
This can be done successfully but it requires honesty about your actual time and effort commitment. Someone who is running their portfolio as a full time job who can afford to check news every 8 minutes can do this if they have a bit of skill.
For most people who can’t, it will deliver a mixed bag of results. You’ll probably win some and lose some and end up about even. I tend not to bother with this because I’ve got other stuff to do, and there is zero evidence that more trading = more money anyway either on FI or in the real stockmarket. If anything, on FI, fewer trades delivers more profits provided they are the right trades.
Get Ahead of the Madness. Or ignore it.
Given I am expecting a volatile January, there are two main strategies. You can also borrow a little from both.
The first is to get out in front of it.
The theory is that:
- New traders will come in in large numbers in January
- Old traders will keep pumping money in, and try to guess what new traders will do
- New traders will be spraying money around recklessly using risk free offers
- New traders tend to favour EPL players, often of the type favoured by pump and dump merchants (overpriced youth and well known premiums)
If we believe this, we could rework our whole portfolio in this direction. But this would be bankroll suicide.
Firstly, because the cost of exiting long held, sensible positions just to catch a few weeks of volatility will cut into any benefits of doing it especially after you have to buy them back later.
Secondly, because this is just a theory. Maybe we don’t see that many new traders join this year. Maybe they are smarter this time than many give them credit for. If it’s wrong we could have just swapped our bars of gold for bags of sawdust.
The second approach is to ignore it. We have a clear direction of travel for the season, which I’ve described in my winter strategy as the “full season fit”. In short, performance strong, consistent winners with reasons to hold them through to the end of the season.
Those players aren’t going anywhere because of the longer term trends that exist, and come February onwards should come into their own.
Due to the winter break, we also currently have some prices suppressed in some full season fit players, probably for the final time this season.
This is one of my favourite strategies, used to spectacular effect weeks before the Share Split this year, and numerous other times such as the early season monster profits from the elite veterans.
When the market is chasing a short term trend, people can be blinded to the longer term trends in play. We may see “full season fit” players being sold if people want to chase pump and dumps or transfer rumour players.
But we also know that people will likely need to come back to the same players for the second half of the season. So, instead of chasing the risers, I chase the quality players that are being sold instead.
I think the optimal approach for January, and the one I will be using, is a combination of the above things.
Firstly, keep my focus on the Winter Strategy, full season fit players. Don’t worry about any short term madness, social media hysteria etc.
If any of these players get sold, buy more of them where it’s warranted by their performance strength and full season trend fit. For Bundesliga/Ligue 1 winter break fallers, do it sooner rather than later.
This is because of the “funnelling effect” I have mentioned.
By the end of January, I expect “end of season sell off” to get mentioned more frequently. This will see money flow out of even good players who have no real reason to be held over the Summer.
This money logically flows towards the players who do have a reason to keep them beyond this season. This is usually the Euros or a big transfer (ideally both).
By the end of January, I will not own any players that I think are vulnerable to an end of season sell off.
This is the primary objective for January. If you are a passive/patient type, doing this, and buying value full season fit players as and when they appear is enough for success.
As a more active trader, I will also have around 10-30% of the balance embracing the potential January madness.
This can be transfer trades as discussed above (The calculated Isco variety rather than the hit and hope Haaland variety).
And I may make some calculated “mug punts” just in case the market really does go silly, so I don’t feel totally left out.
This means buying players you think new traders will be attracted to.
This can be the obvious. The Sterling’s, Kane’s, De Bruyne’s, Greenwood’s, Rashford. Can work, but typically, the big % gains are not coming from these players anyway.
More profitable might be someone like Adama – an emerging player that can put on a show in January. Martial maybe. Grealish. Alli. Calvert-Lewin. Fantasy Premier League can be a good source for these, you don’t need to think too hard for a mug punt, that’s the whole point.
I’d just avoid anything that is difficult to get out of and could easily fall over. Pogba immediately jumps to mind.
Just bear in mind that with transfers and mug punts, if you do hit a nice rise, taking the profit whilst you can is usually the play to make.
EPL assets have had a lot of attention recently. They are usually overpriced at all times, as the most popular league. More so after they had attention over the busy festive period.
Bear in mind as well that the EPL has it’s own winter break in February which will likely put the breaks on them.
I’m expecting a busy (and possibly slightly crazy) month so it’s worth being mentally prepared for it.
Having a clear plan to stick to helps to avoid getting sidetracked. But I also like to lean into the madness a little bit with some calculated trades, even if it’s just to give me something to do so I don’t feel like I’m missing out.
Even if we assume we will get a big rise in January, predicting where it will go exactly is difficult. It will be heavily dependant on transfer rumours, who happens to have a big game, who the pumpers are pushing etc.
That’s why maintaining focus on the longer term trends is crucial – it’s much clearer where they are heading.
And if any short term thinking side tracks people from strong performance players with a full season fit, it could be the last good buying opportunity for them all season.